Part 1: Go to www.cnbc.com and explore the video tab by using the key term diversification. As you learned in this unit, there are various sources of information. Watch at least three videos you find, list the videos you viewed, and provide a summary of the type of information the video contained and how it relates to this unit.
Part 2: QUESTION 1
Assume you are planning to invest $200 each year for four years and will earn 8 percent per year. Determine the future value of this annuity due problem if your first $200 is invested now.
QUESTION 2
Assume a $1,000 face value bond has a coupon rate of 9.5% paid semiannually and has an eight-year life. If investors are willing to accept a 12 percent rate of return on bonds of similar quality, what is the present value or worth of this bond?
QUESTION 3
Using the PVIFA table (table 9.4 in the textbook), determine the annual payment on a $600,000, 10 percent, business loan from a commercial bank that is to be amortized over a five-year period.
QUESTION 4
You are considering borrowing $200,000 to purchase a new home.
a. Calculate the monthly payment needed to amortize a 7% fixed-rate 30-year mortgage loan.
b. Calculate the monthly amortization payment if the loan in (a.) was for 15 years.
QUESTION 5
Use a financial calculator or computer software program to answer the following questions:
a. What is the present value of $450,000 that is to be received at the end of 20 years if the discount rate is 10%?
b. How would your answer change in (a.) if the $450,000 is to be received at the end of 15 years?
SOLUTIONS
Part One: The video contained and how it relates to this unit.
The links of three videos on diversifications are as follows:
- http://video.cnbc.com/gallery/?video=3000242263&play=1
This video shows the discussion between Savita Subramanian, Bofa Merill Lynch Head of US equity and quantitative strategy and Barry Knapp, who heads US Barclays on matters of equity portfolio strategy. They discussed matters on the status of US is in the global world. Issues on whether the country is ahead in global market or getting down in the market correction and the buying opportunity in various areas at the attractive prices are discussed in this video.
- http://video.cnbc.com/gallery/?video=3000235801&play=1
In this video, Richard Bernstein, advisor CEO talks narrate on the stock market and give an idea on all the ‘bubble’ talk. He advised the investors where they can find best investment deals. This video outlines the proper analysis and scrutiny of the trends, facts, figures and values prior to investment, There is the good example of Apples and its settlement matter in regard to kid’s purchase of app without parent permission.
- http://video.cnbc.com/gallery/?video=3000242396&play=1
Matthew Freund, USA and Kristina Hooper, Allianz Global Investor explores the appropriate way of market investment. Hooper argues that, it is in the power of investors decisions to decide their own destinies. According to some of the investors, there are lots of investment gains for investment and taking profits and dividends whiles some other investors feel that the market is full of risk. So it is advisable for the investors to analyze the different markets and to find out different diversified markets before taking the final decision of investment.
These are the different videos with the content on the importance of diversifications and how it can be of profit or risky for those involved in investing. So it is essential to analyze the market cautiously before taking any final decision that involves financial input. These video help us have knowledge on the concept of diversification and its pros and cons.
Part Two:
Question 1: Assume you are planning to invest $200 each year for four years and will earn 8 percent per year. Determine the future value of this annuity due problem if your first $200 is invested now.
Solution
FV Ordinary Annuity=C× [(1+i)n−1]
Whereby:
C represents the cash payments annually
i represents the interest rates for the cash payment and;
n represents the time taken for the number of payments.
In the above problem the solution is:
FV Ordinary Annuity= 200[(1+0.08)4]-1/0.08
=$200×4.51
=$901.22
Question 2: Assume a $1,000 face value bond has a coupon rate of 9.5% paid semiannually and has an eight-year life. If investors are willing to accept a 12 percent rate of return on bonds of similar quality, what is the present value or worth of this bond?
Solution
Coupon payment=Face value× the bond rate
=$1000×0.12
=$120
Worth of the bond= Coupon value [1-(1/1+r)n]+Face Value[1/(1+r)n]
=$120[1-(1+0.95)16]+ $1000[1/(1+0.95)16]
=$120[1-(1/(1.95)16+ $1000[1/(1.95)16]
=($120×-1.29)+($1000×2.28)
=-$154.8+$2,280
=$2,125.20
Question 3: Using the PVIFA table (table 9.4 in the textbook), determine the annual payment on a $600,000, 10 percent, business loan from a commercial bank that is to be amortized over a five-year period.
Solution
A=P[r(1+r)n/(1+r)n-1
A=$600000[0.1(1.1)5/(1.1)5-1
==$158,278.49
Question 4: You are considering borrowing $200,000 to purchase a new home.
- Calculate the monthly payment needed to amortize a 7% fixed-rate 30-year mortgage loan.
Solution
- Principle=$200,000
Rate= 7%
Time= 30years
The monthly payment needed is calculated by the formula:
Monthly payment= P×R×(1+r)n/(1+r)n-1
=$200,000×0.07(1.07)30/(1.07)30-1
=$14,450.16
- b) Calculate the monthly amortization payment if the loan in (a.) was for 15 years.
Solution
Monthly payment= P×R×(1+r)n/(1+r)n-1
=$200,000×0.07(1.07)15/(1.07)15-1
=$30,964.63
Question 5: Use a financial calculator or computer software program to answer the following questions:
- What is the present value of $450,000 that is to be received at the end of 20 years if the discount rate is 10%?
Solution
Present Value= FV/(1+r)n
Whereby FV presents the future value, “r” represents the rate and “n” represents time taken for time.
=$450,000/(1.1)20
=$450,000/6.73
=$66,864.78
b)How would your answer change in (a.) if the $450,000 is to be received at the end of 15 years?
Solution
$450,000/(1.1)15
=$450,000/4.18
=$107,655.50
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